She explained that when Reddit’s price first spiked, some investors who received the allocation sold their shares to cash out their profits, which may have caused the price to drop. She noted that this situation may continue in the early stages of the stock price.
Reddit’s IPO will test the eccentric company’s ability to build a sustainable business after a nearly two-decade history marked by consistent losses, management turmoil, and user backlash. .
The interest around Reddit is primarily due to the large audience that flocks to the service to geek out and get recommendations from like-minded people on topics ranging from silly memes to existential quandaries. It is derived from.
In December, about 76 million users checked into one of Reddit’s roughly 100,000 communities, according to regulatory disclosures required before the San Francisco company went public. Reddit has set aside up to 1.76 million shares of the 15.3 million shares to be offered in the IPO for users of its service.
As per normal IPO practice, the remaining shares are expected to be purchased primarily by mutual funds and other institutional investors, which Reddit expects to be poised for a prime financial year. be done.
Reddit’s money-making potential has also attracted high-profile backers, including OpenAI CEO Sam Altman, who amassed stakes as an early investor and became one of the company’s largest shareholders. Altman owns 12.2 million Reddit shares, according to the company’s IPO disclosure.
By technology industry standards, Reddit remains extremely small for a company that’s been around this long. Thursday’s initial public valuation of $9 billion, for example, is still far below Meta Platforms’ boasted market value of $1.2 trillion — Facebook, the company’s largest social media service, is more expensive than Reddit. It just launched 18 months early.
Reddit has never profited from its extensive reach, racking up cumulative losses of $717 million. This figure is even bigger than the $467 million in accumulated losses in December 2021, when the company first filed listing papers and called off that attempt.
In recent documents filed for the revived IPO, Reddit attributed the loss to its recent focus on finding new ways to increase revenue.
Shortly after its birth, Reddit was sold to magazine publisher Conde Nast in a $10 million deal. This means the company no longer needs to operate as an independent business. Even after Condé Nast’s parent Advance Magazine Publishers spun off Reddit in 2011, the company said in its IPO filing that it only began focusing on revenue generation in 2018.
These efforts are primarily centered around advertising sales, with the social platform’s annual revenue increasing from $229 million in 2020 to $804 million last year. However, the San Francisco-based company posted a total loss of $436 million from 2020 to 2023.
In its filing, Reddit outlined a strategy that seeks to further increase ad sales on the service, believing that because so many people search for product recommendations, it becomes a powerful marketing magnet for companies.
The company also hopes to get more funding by licensing access to its content, in a deal similar to the $60 million Google recently signed to help train artificial intelligence models. . But that ambition ran into trouble almost immediately when the U.S. Federal Trade Commission began investigating the deal.
As Thursday marks Reddit’s first day on the public market, Agarwal emphasized that the first important measure of success will ultimately come down to the company’s next earnings release.
“Now that they are a public company, they will have to report a lot more in their next earnings release. I’m sure the market will watch that closely,” he said.
Reddit has also experienced tumultuous episodes due to leadership instability that could scare off prospective investors. The company’s co-founders Steve Huffman and Alexis Ohanian (also the husband of tennis superstar Serena Williams) left Reddit in 2009 while Condé Nast was still in control. , came back a few years later.
Huffman, 40, currently serves as CEO. The founders’ letter leading up to the IPO didn’t mention it, but Huffman did mention the company’s turbulent past in a separate letter included in the December 2021 filing. , then canceled.
“We have experienced these challenges publicly and have the scars, learnings, and updated policies to prove it,” Huffman wrote. “Our history influences our future. There are no doubt many more challenges ahead.”
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Liedtke reported from San Francisco.
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